What are some examples of target costing in industry?

What are some examples of target costing in industry?

Target costing is a pricing strategy used by companies to determine the desired cost of a product based on its market price. For example, in the automotive industry, manufacturers often set a target cost for a new vehicle based on competitive pricing and then work backward to achieve that cost through design and production efficiencies.

Can you give me more specific examples?

Sure! In the electronics industry, companies like Apple use target costing to ensure that their products remain profitable while meeting consumer expectations. They analyze the market price of similar devices and set a target cost for components and manufacturing.

How does this affect product design?

Target costing influences product design by encouraging teams to innovate and find cost-effective materials and processes. Designers must balance functionality, quality, and cost to meet the target.

Are there any challenges with target costing?

Yes, challenges include accurately predicting market prices, managing supplier relationships, and ensuring quality while reducing costs.